The Student Debt Forgiveness Muddle Continues

I have been arguing for a while that the student debt discussion is undertheorized, which is leading to confusion and muddling (I, II). Recent proposals from Elizabeth Warren and Bernie Sanders and the discussion around those proposals have doubled-down on the muddling, leaving a mostly confusing policy framework without a clear purpose.

The differences between the Warren and Sanders plans tell us a lot about how the two candidates want to be perceived, but do not otherwise clarify much about the student debt forgiveness idea.

Warren wants to be perceived as a careful wonk and so she means-tested her student debt forgiveness plan, providing up to $50,000 of relief for those with household incomes below $100,000. Those with household incomes over $100,000 see their relief total decline by $1 for every $3 of income they receive above that threshold.

Warren’s approach gestures towards recognizing that student debt relief provides more money to higher-income people than lower-income people but then, weirdly, does not actually solve that problem. It seems like the idea is that the gesture alone will earn seriousness points, which seems to have worked to some degree.

Sanders wants to emphasize universality and so he forgives all student debt with no means test. This serves that rhetorical goal, but does not really answer the question of why “people who currently have student debt” are a relevant universe of people for a welfare program. Universal programs provide benefits to everyone within a welfare-relevant group: all old people get old-age pension; all disabled people get disability pension; and so on. But the key question on student debt forgiveness is: why are current student debtors a welfare-relevant group? And the answer to that question remains as muddled as ever.

Is that idea that public 2-year and 4-year colleges should be free and that therefore anyone who carries debt from attending them should have that debt forgiven? In that case, why is debt incurred at private colleges being forgiven? Why is debt incurred from graduate and professional degrees being forgiven? Under this theory, the welfare-relevant universe should be “student debtors who attended public 2-year and 4-year colleges” not “all student debtors.”

Is the idea to repair the financial harm suffered by those who went through these colleges? In that case, why are benefits only being paid to people who currently carry student debt rather than everyone who attended these colleges? Anyone who paid to go to these schools carries a tuition-sized hole in their net worth, not just those who currently have student debt. Only reimbursing those who carry that net worth reduction in the form of outstanding student debt is as arbitrary as only reimbursing student debtors who were born on odd-numbered months.

Many online commentators sent out messages that said things like “I’ve spent a lot of money paying off my student loans, but I am happy for those who won’t have to.” The fact that such a thing even has to be defensively said is a sign that the policy design has gone off the rails. Specifically, it’s a sign that the policy is not actually universal in the sense that it provides benefits to everyone in the welfare-relevant universe. In this case, the welfare-relevant universe would be “anyone who paid for unfree public college” not “current student debtors.” (Ideas for serving that welfare universe are contained in a prior post of mine.)

Thus it appears that the universe of people selected for this program is both over-inclusive and under-inclusive. It is over-inclusive because people who graduate from Harvard’s MBA program in 2021 will receive hundreds of thousands of dollars of debt relief (though, strangely, people who enroll in that program in 2022 will receive nothing). It is under-inclusive because people who drained $50,000 off their net worth to pay for an undergraduate degree at a public college — but who do not currently carry student debt — will receive no reimbursement for their ongoing financial suffering.

At the end of the day, policy coherence might be overrated and student debt forgiveness might be a good political strategy for both Warren and Sanders. It affects tens of millions of people who are also disproportionately likely to vote. On the other hand, it could be a political risk to propose a program based on such an arbitrary universe, not only because the universe of “student debtors” excludes so many people who continue to suffer just as much (and more) from unfree college, but also because it excludes so many lower class people who never went to college at all.

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